Digital Revolution, Unbundling,and New Development Strategy

Symposium on “ASEAN Industrial Transformation to Industry 4.0”20 June 2019

Dr. Masahito Ambashi, Economist of ERIA

What Are Unbundlings?“Unbundlings” to overcome distance a la Baldwin (2016)

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Source: Kimura (2018)

Trade costsCommunication costs

Face-to-face costs

What starts moving?

International division of labor

Dominant years

Pre-globalized world (0)

HighHighHigh

None

Autarky

─1820

The 1st unbundling

(1)LowerHighHigh

Goods

Industry-wise(Production and consumption are

fragmented)

1820─1990

The 2nd

unbundling (2)

LowerLowerHigh

Ideas

Task-wise(An industry is fragmented)

1990─2015

The 3rd

unbundling (3)

LowerLowerLower

People

Person-wise(A task is

fragmented)

2015─

Conditions for participating in production networks:(i) betterment of location advantages and (ii) reducing service link costs.

Source: ERIA (2016), Comprehensive Asia Development Plan 2.0

Fragmentation theory and 2nd unbundling

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Typical industries

Key technologies

Geography

Subsistence agriculture

Self-subsistence

Autarky

Plantation agriculture

MiningLabour-intensive manufacturing

MassproductionMasstransport

system

Comparative advantage

Machinery industries

Supply chain managementTime-sensitive

logistics

Fragmentation and industrial agglomeration

Digital economy

Advanced information and communication

technology

Concentration and dispersion of innovation and its

applications

Pre-globalized world (0)

The 1st

unbundling (1)The 2nd

unbundling (2)The 3rd

unbundling (3)

Source: Kimura (2018)

Unbundlings and Industrialization

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Face-to-face costs get lower.A task can be unbundled. Person-to-person matching becomes easier.

A task

A task is unbundled

3rd Unbundling and Industry 4.0

4

Shop

Internetplatform

Road to the 3rd unbundling: Reduction in B2C, C2C matching costs

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Industrial Dynamism among Unbundling Regimes

Source: Kimura (2018)

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In the 3rd unbundling:Sharing economy and easier matching on internet platformsComplex tasks managed by persons in different locationsIncreased international data flowIndividuals connected with each other more tightly all over the world.

The 3rd unbundling will generate: Future workers may find job opportunities while residing in LDEs if individual innovative activities are globally fragmented.§ Engineers, programmers, scientists, professional managers, accountants, lawyers, and

university professors, etc.§ “Virtual immigration” (leading to “telepresence”) will enable “brainworkers” to provide their

services across borders from LDEs to DEs.

Local applications of technology and business model innovation in each LDE demand globally physical interactions between engineers/scientists and entrepreneurs across the world.§ ASEAN home-grown internet platform providers (e.g. GO−JEK, Grab, Lazada) supply new

relevant services (e.g. e-payment systems) in combination with technological profession (ICT, finance, and others).

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Required Policies for UnbundlingsPre-globalized

world (0) The 1st unbundling (1) The 2nd unbundling (2) The 3rd unbundling (3)

(i) Internationalcommercial policies(FTAs) and behind-the-border issues:Institutional connectivity

Trade liberalization- GATT/WTO round

negotiations- GSP

Trade liberalization and facilitation- FTAs- Tariff removal- E-customs, TBT- Services (B2B) and investment

liberalization for GVCs

Trade liberalization- De minimis- Modes 3 and 4 in services (B2B, B2C, C2C)- (Cross-border) e-commerce and e-payments- Free flow of dataTrade facilitation- SPS- Standards and conformanceBackup policies and regulations- Consumer protection- Competition policy- Taxation- Cyber-security

(ii) Hard infrastructure and physical economic/living environment:Physical connectivity

Medium-grade connectivity- Road networks- Ports and airportsInfrastructure services

High-grade connectivity- Full-scale port with container yard- Full-scale airport- Multi-modal (cargo, passenger)Urban/sub-urban development for industrial agglomeration- Logistics (highway system)- Mass economic infrastructure services

(special economic zones/industrial estates, electricity, energy, water)

ICT connectivity- Internet connection- Integrating connectivityMetropolitan development and urban amenities (Glaeser, et al. (2001))- Urban transport (LRT, subway, airport

access, access to resorts)- Residential environment (children’s

education, medical services, safety)- Other urban amenities (“consumption”)

(iii) Human aspects and inclusiveness:People-to-people connectivity

SME development- e.g., cottage

industry

SME development- e.g., exporting

primary productsHuman resource development- Primary and

secondary education

SME development- e.g., supporting industryHuman resource development- Managers, engineers

SME development- e.g., venture, start-upsConsumer (people)-centered policies- Consumer protection/privacy- Human resource development for innovation

and new businesses- Movements of educated people- Avoid digital divideR&D capabilities and innovation hub

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Source: Yoshihara (2018), “ICT Human Resource Development for Digital Transformation”.

Supplier-side digital skills(Suppliers’ viewpoint)

Demand-side digital skills(Consumers’ viewpoint)

Big data

IoT

Block chain

AI

Design thinking

AgilityLeader skill

Data Science

Required Skills in Digital Economy

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Targets:Child intellectual stimulation. Curriculum support for school students.Engineering and computer programming classes for skilled workers.

Examples: Delivery of on-line lectures provided by leading global universities.Adaptive learning systems that offer study content customized for individuals.

Source: EdTech Media. Source: Information Age.

“EdTech”: An Educational Method Based on ICT

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